Global financial markets finally got a big relief ahead of the US public holiday. The combination of US jobs data that started to cool down along with the continued fall in world crude oil prices has managed to calm wild speculation about a rate hike by the Federal Reserve (Fed) this year. Oil & Gas
Here are the status of major commodity markets and currencies that you must know:
1. Global Gold, Crude Oil ‘Dropped’ by the Market
Gold (XAU/USD): Managed to defend its gains and traded firmly around $4,125 per ounce early Friday morning. Weak US labor data reduced rate hike bets, thus reviving the appeal of gold as a non-yielding asset.
US Crude Oil (WTI): Slipped below $68.50 per barrel. The fall was triggered by increased tanker traffic in the Strait of Hormuz which added to short-term market supply, in addition to positive developments in US-Iran peace talks.
2. US Dollar Withers, Japanese Yen Attempts to Rise
US Dollar Index (DXY): Recorded a fall in the New York trading session yesterday due to the impact of labor data.
Japanese Yen (JPY): Slightly retreated after recording a strengthening in the previous session, trading around the 161.30 level per dollar this morning.
US Bond Notes (Treasuries): Closed this week (which was shortened in conjunction with the holiday) with lower short-term bond yields. The US cash bond market is completely closed this Friday in conjunction with the public holiday.
June NFP Investigation: Labor Market Begins to 'Cool Down'
The main reason behind the US Dollar's fall and the gold surge is the June Non-Farm Payrolls (NFP) report released by the Bureau of Labor Statistics on Thursday:
Weak NFP Headline: The US economy added just 57,000 jobs last month. This figure is much lower than previous reports which have always exploded, coupled with a downward revision for the data of the past two months.
Unemployment Rate: Slightly down to 4.2%, but this decline was due to a sharp decline in the labor force participation rate (many people are leaving the labor market).
What is the Impact on Fed Policy?
The latest data shows that the US labor market is still expanding, but is no longer in the 'overheating' phase. This situation provides enough comfortable space for the Fed to remain patient and not rush to raise borrowing costs in the near future.
Traders on Wall Street also acted to reduce bets on additional rate hikes, although the market is still pricing in at least one interest rate hike by the end of this year.
If this disinflation process continues as expected, the Fed seems to have a strong reason to keep interest rates at their current levels throughout the second half of this year without having to act aggressively.
We expect the US Dollar to start moving sideways in a small range for the next few sessions due to the lack of market liquidity from the US today. This is the best opportunity for the gold market to consolidate its position above the $4,100 level.
With this lackluster NFP data, do you think gold has any hope of breaking through the $4,150 level next week? Please leave a comment below!
